Credit Unions vs. Banks: An Overview
Bank and credit unions have several similarities and differences to consider. Both offer the same general services such as checking and savings accounts as well as various loan options. And your deposits in both credit union and banks accounts are federally insured for up to $250,000 per account, per account holder.
However, you will find differences in fees, interest rates, product offerings, convenience, and customer service, although each financial intuition is different. Credit unions tend to offer lower rates and fees as well as more personalized customer service. However, banks may offer more variety in loans and other financial products and may have larger networks that can make banking more convenient.
Key Takeaways
- Credit unions tend to have lower interest rates for loans and lower fees.
- Banks often have more branches and ATMs nationwide.
- Many credit unions have shared branches and surcharge-free ATMs provided through the CO-OP Shared Branch network.
- Bank have historically had better technology online and for mobile apps.
- Each bank and credit union will offer different products and terms, so compare financial institutions individually.
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Banks
Commercial banks, or retail banks, may be owned by investors or privately owned. Banks operate as for-profit institutions. Anyone can open an account with a bank, whereas credit unions have membership requirements.
There were 4,672 FDIC-insured banks with roughly $23.7 trillion in assets, as of 2023. According to the American Banking Association, around 94% of all banks were classified as small businesses in 2021. Banks can range from one-branch community banks to larger regional and national banks.
Commercial banks typically offer various banking products to consumers and businesses, including checking or savings accounts, personal loans, auto loans, or mortgages.Banks may provide investment and saving vehicles like individual retirement accounts (IRAs), certificates of deposit (CDs), and money market accounts.
Note
Banks must pay federal income tax on their earnings, unlike credit unions, which have a tax exemption on earnings.
Bank deposits are federally insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), so your funds will be safe in the event of a bank failure.
Credit Unions
Credit unions are not-for-profit financial institutions owned by their members. They provide many of the same products and services as bank including checking and savings accounts as well as various loan products and investment accounts like IRAs.
Deposits in credit union accounts, like with banks, are federally insured for up to $250,000, but by the National Credit Union Administration (NCUA) instead of the FDIC.
As of 2023, more than 137 million people belong to a credit union. Credit union members can vote on credit union policies and participate in decisions. According to an NCUA 2022 annual report, 4,760 federally insured credit unions held assets of around $2 trillion.
Credit unions must limit their customer base to an NCUA-approved “field of membership,” such as a workplace, school, place of worship, or geographic area. National credit unions want to increase membership, so they may offer broader fields of membership, such as accepting members of a specific organization, large company, or broad geographic area.
Credit unions' profits are returned to members through benefits such as lower fees and better interest rates. According to CUNA estimates, the financial benefits provided to credit union members are equivalent to $129 per member or $271 per member household.
Credit unions were initially developed to provide limited banking services to moderate-income people within a narrow field of membership. As a result, credit unions are exempt from federal income taxes.
Due to longstanding regulations, credit unions face more limitations compared to banks, especially in investing, lending, and commercial banking.
Key Differences
| Credit Unions vs. Banks | ||
|---|---|---|
| Credit Unions | Banks | |
| Fee Costs | Lower | Higher |
| Branches | Fewer | More |
| Loan Interest Rates | Lower | Higher |
| CDs and Money Market Rates | Higher | Lower |
| Interest Checking and Savings Rates | Higher | Lower |
| Customer Service Ratings | Varies | Varies |
| Products Offered Ratings | Fewer | More |
| Mobile App Ratings | Similar | Similar |
Fees
Fees can play a significant role in choosing a financial institution. Credit unions tend to charge lower fees than banks.
| Average Credit Union vs Bank Fees | ||
|---|---|---|
| Credit Union | Bank | |
| Average NSF Fee | $28.36 | $31.54 |
| Average Credit Card Late Fee | $24.56 | $34.18 |
| Average Mortgage Closing Costs | $1,151 | $1,361 |
Other 2021 research released by the Consumer Financial Protection Bureau noted that credit unions had lower overdraft and non-sufficient funds (NSF) fees.
However, dozens of fees may be charged by institutions, including monthly account maintenance fees, ATM fees, foreign transaction fees, debit card replacement fees, and other fees. Carefully review any fees important to you. You may be able to find a low-fee or fee-free account at either a bank or a credit union.
Branches and Other Access
While in-person access may not be as important as it once was, many people still desire convenient branch options and ATM access. If you frequently visit a physical branch for consumer or business services, carefully consider a financial institution's branch network.
Banks get higher customer satisfaction American Customer Satisfaction Index survey ratings for the number and location of ATMs and branches, compared to credit unions. National banks lead in customer satisfaction with the highest ratings for both ATM and branch numbers and locations.
A credit union tends to have fewer branches on average than banks.For example, the nation's largest bank—Chase—has 4,700 branches.
To offset this disadvantage, credit unions have formed a CO-OP Shared Branch network with more than 30,000 ATMs and 5,000 shared branches nationwide. At shared branches, members can perform many in-person tasks.
Interest Rates
Credit unions typically offer higher interest returns on some products and lower interest rates on lending products.
According to a comparison of 2023 averages, credit unions tend to provide slightly higher returns on certificates of deposit and money market accounts. However, banks offered higher average returns on interest checking and savings accounts that year.
Credit unions offered more competitive interest rates on loans in 2023, charging lower interest rates compared to banks for:
- Credit cards
- Fixed-rate mortgages
- Adjustable-rate mortgages
- Unsecured fixed-rate loans
- Home equity loans
- Used car loans
- New car loans
In some cases, the rate differences were slight. However, credit unions tended to offer significantly lower rates on average for credit cards and auto loans.
Credit unions also can't charge more than 18% interest on consumer loans, with the exception of short-term loans that compete with payday loans, which can have rates as high as 28%.
Customer Service
While customer service is often touted as more of a credit union benefit, the American Customer Satisfaction Index's 2022 surveys indicate that banks are stronger in this area overall.
Credit unions post lower customer satisfaction results compared to banks, with scores dropping over time, according to the ASCI. The highest-ranked customer service scores are with regional and community banks.
However, credit unions were rated more strongly for courtesy and helpfulness of tellers or other staff compared to all other financial institutions. For the speed of in-branch financial transactions, credit unions and regional and community banks had similar high ratings.
Banks had overall higher ratings than credit unions for call center satisfaction, ease of understanding accounts, and adding or making changes to accounts.
Product Offerings
ASCI customers surveyed scored credit unions lower for various financial services available, including checking, savings, debit/credit cards, and loans. Banks score higher in this regard.
For example, many large national banks offer international banking services and products for those who often travel or live abroad. While some credit unions may offer these services and products, it's uncommon.
When comparing credit cards, national banks dominate our list of best credit cards. Credit union cards tend to focus more on offering lower interest rates versus rewards and perks.
Mobile App
Customers gave banks and credit unions equivalent scores for website satisfaction, and for mobile app quality and reliability in the ACSI survey for 2022. In 2021, credit unions ranked lower in all three areas—so credit unions have improved overall in this department, although they are known to lag banks with adapting new technology.
National banks ranked highest for mobile app quality. Unlike many small credit unions, national and global banking companies often have large budgets for technology.
You can still find excellent digital banking options at many national credit unions. Investigate mobile banking technology and check websites for simplicity and services.
Are Credit Unions Safer Than Banks?
Deposits in both banks and credit unions accounts are federally insured for up to $250,000. If you have more than $250,000 to deposit at either a bank or credit union, you consider depositing the remainder with another financial institution.
What Are the Major Advantages of Credit Unions?
Credit unions typically offer lower closing costs for home mortgage loans, and lower rates for lending, particularly with credit card and auto loan interest rates. They also have generally lower fees and higher savings rates for CDs and money market accounts. Finally, members of credit unions get to vote on policies and decisions made by the financial institution.
What Are the Disadvantages of Credit Unions?
Most credit unions cannot compete with banks regarding the number and type of products offered by larger banks. Credit unions may be less competitive with mobile app technology as well.
The Bottom Line
Credit unions can be ideal for a low-interest loan, lower mortgage closing costs or reduced fees, but you'll need to qualify for membership. Larger banks may offer you more choices regarding products, apps, and international or commercial products and services, and anyone can join. Smaller community and regional banks may give you more customer service for your buck, if that's essential to you. Weigh the pros and cons of each type of financial institution to decide which best serves your needs.
